Gearing Up for Small-Business Push, PNC Building an Assembly Line

In a recent speech to his small-business lending staff, PNC Bank Corp. president James Rohr gave the regular marching orders: reduce costs, increase revenue, improve customer service.

The message was not unusual, but the venue was. Mr. Rohr was speaking at a newly opened three-story loan center in a suburban Philadelphia office park. In his audience were people who will likely never meet the entrepreneurs they serve.

PNC's move to centralize and automate small-business lending-with loan officers working the phones and fax machines instead of pressing the flesh- is a bid to embrace the future.

The bank is using the highly automated facility to sell secured loans, credit cards, and equipment leases nationwide through direct mail and telemarketing.

"People insisted that small-business lending had to be done in the branches," Mr. Rohr said. "But our business has changed, our technology has changed, and our competitors have changed."

PNC's centralized loan factory illustrates how banks are coping with the evolution of small-business lending toward a high-volume, low-margin market. Like PNC, lenders large and small are trying to streamline to compete in the new order.

Pittsburgh-based PNC plans to process 25,000 small-business loan requests a year and lend $1 billion nationwide in the next year through its loan center.

As of June 1996, PNC was the 10th-largest bank lender to small business, with 48,601 loans outstanding for $2.5 billion, according to Sheshunoff Information Services.

The centralized operation has helped PNC increase its processing volume from 70 loans a month a day? during April 1996 to 125 loans a day last month.

Anuj Dhanda, PNC senior vice president and manager of the small-business loan center, said such speed is necessary for the bank to keep costs down as it moves into markets nationwide.

"If we are going to grow at the rate we want to, we have to go outside our geographic market," Mr. Dhanda said. "When we go to Kansas, we will have the lowest costs and go after the highest quality credit."

The overriding goal of PNC's new system is speed. In an age when business credit is often as easy as dialing "1-800," entrepreneurs want an approval or rejection fast. PNC is mindful of that at every step in its process.

PNC loan center employees currently handle applications faxed in by the branch staffs. By the end of the year, the bank plans to send and receive applications by direct mail.

Loan-center employees type application information into a computer system and send a fax back to the branch, either requesting more information or confirming they received the loan request. Loan-center employees keep the fax in a folder which is filed later so the bank has a printed record of the original application.

PNC uses one computer system for all aspects of the lending process, while some other banks use separate systems for applications, approvals, and servicing. Integration means the underwriters and the documentation staff don't have to re-type the same information.

The automated lending system has made a big difference for Alicia Madura, who moved from a local lending office in Erie, Pa. to supervise documentation preparation at PNC's loan center.

"I'm amazed at the number of loans we can pump out of here," Ms. Madura said. "One person puts the information in once and that's it. It has made our lives so much easier."

Then underwriters check the information and use an on-line system to review the collateral. If the collateral is real estate, they request a title search by pushing a computer key.

While the rest of the staff works in teams to cover PNC's entire market, the underwriters are grouped by the geographic area they serve so they can respond to local economic trends and competitive pressures from other banks in that region.

The lenders use a credit-scoring system linked to credit bureaus and information supplied by Dun & Bradstreet to evaluate the likelihood that the entrepreneur will repay the loan.

"In the past, you really had to know people personally to gather the information," Mr. Rohr said. "Now the credit bureaus are so robust that the processing has changed completely."

The process is highly automated, but PNC does not make automatic approvals based on credit scores; a lender makes the final decision.

While one employee can sign to approve a loan, two signatures are needed on a decline. The bank wants to ensure its lenders consider using Small Business Administration programs or specialized programs for loans to low- or moderate-income borrowers. Folders of loan applications are lined up in boxes marked "declines" in the hallway outside the SBA lending division.

Once an application is approved, loan center employees transmit the completed forms back to the branch staff, which prints the loan form on paper for the borrower to sign. If the request is rejected, loan-center employees send a letter of explanation to the branch.

Before centralized loan processing, PNC branch staff completed four-page forms for each application, examined financial ratios to determine whether to approve the loan, and explained the decision on paper.

Now, the lack of direct interaction with customers and the more casual environment at the loan center help speed the processing, Ms. Madura said.

"We never have customers in here," she said. "I can get more work done because I can kick my shoes off and focus on what we are doing."

The faster pace means lower costs. Mr. Dhanda said lending through the centralized factory has cut costs more than 40%.

Those reductions will be key as PNC expands small-business lending to areas around its Pennsylvania base and then further westward. PNC will mail solicitations into new markets and follow up with telephone calls.

The next step in the process-although the bank hasn't completely figured out how to do it-would be to use the information from the loan applications to compile a customer data base, Mr. Dhanda said.

Then the bank could compare business owners in certain industries with their peers and offer suggestions about how they could better manage their finances, he said. That would presumably reinforce relationships with customers in far-flung locales-and get more profit out of each customer.

"The motive is not only to drive bank sales, but also to forge a relationship and give some advice," Mr. Dhanda said.

The bank is more skilled at building relationships in areas where customers interact with branch staff and are familiar with the bank's name, said A.J. Desposito, PNC segment manager for business banking.

The goal of developing relationships by providing financial advice is even more ambitious when the bank is making loans nationwide, Mr. Desposito said.

"We can provide more than just the traditional banking services of loans and deposits," Mr. Desposito said. "We don't know whether or not we can deliver that nationwide, but that is what we are striving to do." u

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